The ideal age to start investing your money is your 20s. You've started working, you have slightly lesser responsibilities, and you are at an age where you can take higher risks with your money. Setting aside a portion of your earnings at this age is the best way to ensure a stable financial future. The formula for investing in your 20s is simple: spend less than your earnings and invest the difference. However, it's not always that easy. Ahead, we've connected with Hena Mehta, co-founder and CEO of Basis, a financial services platform for Indian women, to help you get started.
"Investing can seem daunting, scary, or too risky, leading to inaction. If you're struggling to start investing, start with super-small amounts you are okay losing. Mutual funds are a great way to start since they are actively managed by fund managers and have diversification, tracking, etc., built in them. So, you just need to take the plunge and let the mutual fund take care of the rest," advises Hena. Scroll down for the rest of her breakdown.
The Three Must-Have Investments In Your 20s
Before investing, it is essential to understand your risk appetite. Hena states that “Typically, in your 20s, you can take more risks—you tend to have fewer responsibilities and have time on your side. Of course, this is a broad generalisation and can differ across individuals. If your risk appetite is high, there are the three must-haves for a twenty-something-year-old:
A Diversified Portfolio
Don't follow the herd; do your research and look at different kinds of investments to understand what's right for you. Mutual funds are an excellent way to start. A rule of thumb you can follow is the proportion of stocks in your portfolio should be 100 minus your age. So if you're 25, have 75 per cent equities! Of course, other factors go into this decision, and this is a simple heuristic.
Health Insurance
I cannot stress this enough. Health insurance is cheaper when you get it earlier, and the insurance cover you get from your employer is usually not enough. Plus, you don't want to be left uninsured if you're in-between jobs! Get your own health insurance, and get it as soon as possible.
A Credit Score
While you may not require credit, get into the system and start building your credit history—this can come in handy later when you are looking to take on loans, say for a car or a home. A credit card could be a good way to get started. Of course, make sure you pay back your EMIs/bills in time to build that 800+ score!
Financial Risk Factor While Investing In Your 20s
Risk appetite and tolerance depend on a bunch of things. “In general, when you're younger, you can afford to take more risks since you have more time to tide over potential storms. But the risk is also super personal. If you have obligations such as paying off large education loans or taking care of family members, your risk appetite may not be as high. There are many tests online that you can take to understand where on the risk spectrum you lie,” suggests Hena.
Investment Must-Dos For Women Who AreInvesting In Their 20s
The number one rule, as per Hena, is simple. “Just start investing, even if it's in small amounts. Automate your investments, so it becomes a habit without much effort. You can start a SIP in a mutual fund of your choice for as little as ₹500. Slowly, work your way up. Every time you get a hike or see that you can save more, increase the investment amounts. You'll soon start seeing those green arrows in your portfolio, giving you the confidence to take your investment game to the next level.
She further suggests finding an investment buddy. “Money is a taboo topic, and figuring it out can get lonely. Find a confidant, and discuss money matters openly. Getting a financial advisor or planner may not be a bad idea. Yes, it may cost money, but it could also help you make much more money in the long run.”
Another must-do on her list is to keep learning about investment tools. “Personal finance is not a one-time exercise. Chalk out just thirty minutes a month to educate yourself on money matters. The returns on this time will be positive, I promise.”
Investment Mistakes To Avoid While Investing In Your 20s
“It is SO tempting to copy what your friend is doing or follow what may seem like cool trends you find on the Internet (from a non-qualified financial influencer, for instance!),” states Hena. “Build your own view of what you would like to do with your money. Also, remember to get out of your comfort zone. You only grow when you're uncomfortable. This is great to internalise—whether for your career growth, personal growth, or growth of your finances. Step outside your financial comfort zone (mine used to be fixed deposits, and fixed deposits only!), and explore the plethora of options available.”
“Lastly, avoid procrastinating. This is super common. Planning for the future seems so theoretical in the present, but as we all know, the future will come. So, don't sit on your idle money and waste precious time. You've probably heard of this magical thing called compounding—and the key ingredient to compounding is time.”
How Much Money Should You Invest In Your 20s
“This can differ from person to person, but a good rule of thumb is to keep 30 per cent of your monthly salary aside for investments (i.e., the future). The rest can be split up across essential expenses such as rent and utilities, an emergency fund, an indulgence fund, and perhaps even a little set aside for charity,” shares Hena.
“There is no harm in saving more. So if you are, let's say, living with family and don't have high fixed expenses, then you can allocate more into your investments or emergency funds.”
How To Keep Track Of Your Investment
Besides keeping track of financial advice on Her Circle, Hena lists some interesting apps and websites. "Maintaining a simple Google Sheet will do for your investments, but remember to check and update it periodically (once a month or once a quarter is more than enough). There are various budgeting apps for your expenses, but what I find most useful is looking at my card statement since I don't need to do any work to note down what I'm spending on. You can even log on to websites like Basis and check out the Knowledge Boosters, which are bite-sized video lessons you can watch and learn from on the go. Basis is also launching a prepaid card that is perfect to use to budget and track your spending. Plus, there are some women-centric offers and rewards from brands we all love that you don't want to miss."
So don’t procrastinate anymore and start working towards building a stable financial portfolio in your 20s. This will ensure that you are well prepared for any future emergencies and give you a head start on your retirement fund as well.